How to Make Investments in Your Roth IRA

Investing in a Roth IRA account is similar to other retirement accounts in that you can choose certain securities once your account is created. Where the Roth IRA differs is its tax-free growth potential, which can significantly enhance your retirement savings over time. The key to maximizing this benefit is making informed investment choices that align with your financial goals and risk tolerance. Diversification is often recommended to mitigate risk and optimize returns, as is regularly reviewing and adjusting your Roth IRA investment strategy to reflect changes in the market and in your circumstances.

When you’re considering how to invest funds in your Roth IRA, a financial advisor can help you identify and select the options that fit your situation.

Roth IRA Investing Basics

A Roth IRA is a tax-advantaged retirement savings account that is funded with after-tax contributions. Earnings from investments made with funds in the account grow tax-free. After you reach age 59 ½, you can take money out of the account without owing taxes, as long as it’s been at least five years since you opened it.

You open a Roth IRA at a sponsor, typically a brokerage or bank, which governs the investment options available for the account. Investment options in many Roth IRAs are limited and consist of a small selection of money market accounts, mutual funds, exchange-traded funds, index funds and target date funds. Occasionally, accounts may allow account holders to select individual stocks and bonds. With some plans, you can choose to work with a robo-advisor or human investment manager who will help you make selections.

A subset of Roth IRAs, self-directed Roth IRAs, permit account holders to select investments from a much wider range of options. Depending on the specifics of the self-directed account, these may include real estate, business partnerships, gold and other precious metals and even cryptocurrency and derivatives, such as options. While self-directed accounts offer greater freedom, they also carry added responsibility and risk. A sponsor offering a fully self-directed account must inform you about the risk, return and other characteristics of available investment options, and may even require you to release them from any fiduciary duties to match you only with suitable investments.

Some investments, as well as certain types of financial transactions, are not permitted within Roth IRAs. Banned investments include collectibles, such as antiques, art, stamps and jewelry (you can invest in some coins made of gold and other precious metals, but not as collectibles). Prohibited transactions include lending money to disqualified people, which include you, the account holder, as well as your spouse, children and grandchildren.

Choosing Your Investments

A couple choosing investments for their Roth IRA.

When you set up your Roth IRA account, you will be asked to select the investments you’d like to buy with your contributions. Typically, you’ll specify this as a percentage of your contributions. For instance, you may opt to put 60% of your contributions into one or more bond index funds and the remaining 40% into equity index funds, with that 40% divided equally between small growth stocks and dividend-paying large companies. Future contributions would then be allocated among these investments according to the percentages you pick.

Later on, you could choose to change your investment choices. For example, you may rebalance your portfolio on an annual or other basis, selling some investments and buying others in order to maintain your desired asset allocation. You may also change your investments as your objectives change, such as when you shift toward a more conservative risk profile as your planned retirement date nears.

Many plans allow you to update your investment choices online. Typically, Roth IRA account holders can simply log onto their company’s website and select the “Investments” tab, pulling up a screen where you can buy or sell investments, or reallocate your existing portfolio.

Tips for Setting Up Your Roth IRA

Roth IRAs offer tax-free growth and tax-free withdrawals in retirement, making it an attractive option for many investors. Here are some essential tips to help you set one up:

Choose the right financial institution. Selecting the right provider for your Roth IRA is crucial. Consider factors such as fees, investment options and customer service. Banks, credit unions and brokerage firms can all offer Roth IRAs. Compare their offerings to find the best fit for your investment strategy and financial goals.
Decide on your investment strategy. Determine how you want to allocate your funds within the Roth IRA. Investment options can include stocks, bonds, mutual funds and ETFs. Your choices should align with your risk tolerance and retirement timeline, ensuring a balanced portfolio that can grow over time.
Set up automatic contributions. Automating your contributions can help you stay consistent with your savings plan. Most financial institutions allow you to set up automatic transfers from your bank account to your Roth IRA. This approach ensures you regularly contribute, maximizing your retirement savings potential.
Stay informed about contribution limits. Keep track of annual contribution limits to avoid penalties. For 2025, the maximum Roth IRA contribution is $7,000 (or $8,000 if you’re 50 or older). Staying informed about these limits helps you plan your contributions effectively and avoid excess contributions.

How to Manage Risk in a Roth IRA

Managing risk in a Roth IRA means finding the right balance between growth and protection. Since Roth IRAs allow your money to grow tax-free, reducing losses over time can have a lasting impact on your retirement savings. Your investment mix, or asset allocation, should match your age, time until retirement and comfort with market changes. Those with more years left to invest often hold a larger share of stocks for growth, while those nearing retirement may favor bonds or cash equivalents to limit volatility.

Rebalancing your portfolio from time to time helps keep your investments in line with your original plan. Market shifts can change the value of certain holdings, and adjusting your allocation can restore balance and control risk.

Diversifying across asset types, such as stocks, bonds and funds can help protect your account if one part of the market performs poorly. Broad-based mutual funds and ETFs are common tools for diversification.

And remember, managing risk is an ongoing part of retirement planning, as opposed to something you do just once. Reviewing your Roth IRA each year or after major life changes can help confirm that your investments still fit your goals. Because every situation is different, it may be useful to discuss your investment and tax strategy with a financial advisor or tax professional.

Bottom Line

A client meeting with an advisor to review Roth IRA investments.

Investing in your Roth IRA can be a strategic way to secure your financial future, offering both tax-free growth and withdrawals in retirement. To make the most of your Roth IRA, it’s essential to understand the types of investments that align with your financial goals and risk tolerance. Diversifying your portfolio with a mix of stocks, bonds and mutual funds can help balance risk and reward, ensuring your investments grow steadily over time. Regularly reviewing and adjusting your investment strategy can help you stay on track to meet your retirement goals.

Tips for Retirement Planning

Whether you have a self-directed Roth IRA or a more conventional one with limited investment options, a financial advisor can help you determine which investment choices fit your needs and risk tolerances. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
After entering a few details including your birth year, income, location and planned age at retirement, SmartAsset’s retirement calculator provides an instant estimate of how much you may need to save to retire comfortably.